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Euro to US Dollar Exchange Rate Heads Higher as Demand for USD Dips as US Stimulus Hopes Grow

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US Dollar (USD ) Falls as Risk Sentiment Improves on Covid-19 Vaccine Hopes

The Euro to US Dollar (EUR/USD) exchange rate rose by 0.3% today, with the pairing currently trading around $1.234.

The Euro (EUR) rose against the US Dollar (USD) with demand for the safe-haven ‘Greenback’ being compromised by improving risk sentiment as Covid-19 vaccines continue to be rolled out worldwide.

Meanwhile, global markets are becoming more confident that the US Democrats could secure the upper chamber in Georgia.

This means that the US could see a more substantial stimulus package in the months ahead.

Paul Sandhu, an analyst at BNP Paribas, Hong Kong, commented:

‘A Democratic-led government is expected to add more stimulus to help mitigate the virus crisis and… that means that there’s going to be a weaker dollar.’

As a result, there’s a growing confidence in the global economy as a US stimulus package would effectively bolster the world’s largest economy’s recovery in 2021.

In US economic news, today saw the release of December’s ADP Employment Change data fall to -123 thousand.

Euro (EUR) Rises Despite Growing Concerns for the Eurozone’s Economy

The Euro (EUR) rose against the weaker ‘Greenback’ today despite concerns over the slow rollout of the coronavirus vaccines throughout Europe.

As a result, EUR traders are becoming more worried about the Eurozone’s economic recovery going forward.

Today also saw the release of the final Eurozone PMI Composite report for December, which fell below forecasts to 49.1.

Chris Williamson, the Chief Business Economist at IHS Markit, warned:

‘Worse may be yet to come before things get better, especially as the latest survey data were collected before the news of the new – more contagious – strain of the virus. Service sector activity in particular looks likely to remain constrained by severe social distancing in the early months of the new year. The risk of a technical recession, with GDP also falling in the first quarter has therefore risen.’

Consequently, European markets are concerned that the Eurozone’s economic recovery could take longer than expected, with key PMIs having underperformed last year.

Paul Smith, economics associate director at HIS Markit, said:

‘While businesses have become more optimistic about activity in a year’s time thanks to the development of Covid vaccines, the picture for the near-term still remains uncertain, with restrictions on activity set to stay in place as long as case numbers remain high.’

EUR/USD Outlook: US Dollar Could Fall as Risk Sentiment Improves on US Stimulus Hopes

Euro (EUR) investors will be awaiting tomorrow’s release of the latest Eurozone Retail Sales data for November.

Any signs of the Eurozone’s economy struggling would be EUR-negative.

Tomorrow will also see the release of the flash Eurozone CPI data along with the bloc’s latest Business Climate report for December.

Again, if this data paints a bleak outlook for the Eurozone’s economic recovery, we could see the EUR/USD exchange begin to fall.

The US Dollar (USD) will likely continue to fall this week, with investors seeking out riskier assets as a mixture of Covid-19 vaccines and US stimulus hopes weaken demand for the safe-haven ‘Greenback’.